A Partial Primer on Money

[Shooterman]

There are basically two types of money.

Commodity Money and FIAT Money

Where does money come from; how does it originate?

Commodity money (a medium of exchange) is an invention of the market; it evolves. Market participants want that which is used for money to have the lowest transaction costs when transferring wealth geographically and over time. The market has determined that gold is the most efficient money, then silver. The reason the market chooses gold-as-money is because it is the commodity for which the buy/sell spread increases the least as ever-greater quantities are offered for sale. Because it takes work to create commodity money, it is said to have “intrinsic value.”

( FIAT Money is ) An arbitrary (fiat) invention. It is created out of nothing by banks and central banks and made legal (with legal tender, a.k.a. “forced tender,” laws) by politicians with whom they have colluded. Because it takes no work to create fiat money, it is said to have no “intrinsic value.” With fiat money, there is no limit as to how much can be created, and it always eventually becomes worthless.

How is money defined?

With commodity money, money is defined as a quantity of a commodity. For example, in the United States, the dollar was defined by the Coinage Act of 1792 as 325.25 grains of silver.


There is no definition, i.e., there are no units of measure. This lack of a defined unit of measure, as postulated by then Warden of the Mint Sir Isaac Newton, was enough to preclude the use of fiat money in England in the year 1700 and for almost 230 years thereafter.

Is there a limit as to how much money exists?

The amount of money is limited by the costs of producing it. In the case of gold-as-money, those costs include prospecting for, mining, and refining gold.

Because fiat money is created without work, there is no limit as to how much can be created.

Why do people accept money in exchange for their goods and services?

People recognize commodity money as something that has “intrinsic value.” The concept of money as a medium of exchange is to facilitate trading wealth for wealth; labor for labor; work for work. This has been true all over the world for all recorded time.

Because of material misrepresentation and nondisclosure about fiat money, people are tricked into accepting and saving it. In addition, legal tender laws coerce people to accept it when disputes are adjudicated in the courts. For a short while, during the American Revolution, politicians decreed that any who would not accept the fiat currency of the day (called continentals) as payment for goods and services be treated as enemies of the country and precluded from all trade or intercourse. The U.S. Constitution implicitly disallows the notion of fiat currency in Article I Sections 8 and 10.

All About Money - Print Version

[leobold1]

Didn't you already post this? I'm not complaining, the basics aren't understood by some of the "experts", much less the layman.

[Shooterman]

Originally Posted by leobold1

Didn't you already post this? I'm not complaining, the basics aren't understood by some of the "experts", much less the layman.

Yes. I had posted it in it's entirety. In light of the current meltdown, I thought it might be appropos to post a partial again, mainly to show how the complete and total lack of understanding by the powers that be of what an excess of play money does to the system, can be understood by those willing to assess what the NGM ( nice government men ) are doing to our lives with their incessant attempts to save the necks of the criminals on Wall Street.

[Woodmonkey]

Thanks for doing the partial, Mr Shooterman.